Quarterly Expectations Low for Most Online Media Companies
Many Internet media companies have already warned of a weak fourth quarter due to soft online advertising spending, but analysts said more gloom could be on the way with their upcoming quarterly reports.
“A combination of ‘dot-com’ meltdowns, tumbling markets and economic slowdown conspired to make [the] fourth quarter exceedingly difficult for Internet media,” said Paul Noglows, JP Morgan analyst in a research note.
Although most of the companies that offer online content are expected to post earnings that are in line with estimates--albeit lowered estimates in many cases--analysts believe they may also offer up more cautious-than-expected guidance for 2001.
A slowdown in ad spending has been at the core of the problem for many of the companies, which are struggling to turn a profit to appease Wall Street. In the process, their stocks have taken a beating, with most sinking to near-52-week lows and off as much as 95% from 52-week highs.
The growing sentiment that the economy is slowing has aggravated the situation and caused even industry bellwethers such as Yahoo Inc. to issue cautious 2001 outlooks.
Companies including TheStreet.com Inc., NBC Internet Inc. and Salon.com have been among those to slash work forces in hopes of trimming costs.
Analysts said that for companies such as NBCi, which cut its 2001 revenue estimate by $50 million--to $100 million--last week, they will keep a close eye on the companies’ exposure to dot-com advertisers and look for growth in traffic.
Prudential analyst Bill Lerner said NBCi may further lower its guidance.
“I don’t think they know how comfortable they are with that at this stage so my sense is we might see further reduction in guidance,” Lerner said.
Marketwatch.com Inc. has been weathering the storm fairly well by building an overall ad base that is of higher quality than its rivals, but it could also announce job cuts.
“I wouldn’t be shocked if there was some sort of cost-cutting initiative, but my sense is that they are probably better positioned on the revenue side than some of the others,” Lerner said.
Analysts are also “cautiously optimistic” about technology news provider CNET Networks Inc.’s likelihood of meeting estimates.
However, there is a risk that weakness in PC software and hardware companies could affect the technology news provider’s ad revenues and cause the company to waver in its commitment to the guidance given in mid November for 2001, Noglows said.
The company could post a steep loss in its portfolio of marketable securities, analysts said.
For TheStreet.com, analysts said they were cautious about whether the company would meet even analysts’ lowered estimates given the difficult conditions in financial markets and expectations for further attrition in its subscriber base.
The bar is also set relatively low for IVillage Inc., which targets women online, Noglows said in his note.
“While IVillage has a large audience among a desirable demographic, it is likely to be squeezed by growth in market share by the top portals and by Internet direct marketers, and the dot-com downturn. Dot-coms accounted for 40% of its third-quarter revenues,” Noglows said.
